Structure of the answer:
- Introduction (about IBC)
- Positive impact of IBC
- Suggestion and way forward
Before the passing of IBC it took an average of 4.3 years to resolve insolvency and recovery rate was 25.9% as compared to developed countries where recovery rate was 72%.
The salient features are:
- Consolidation of various laws on insolvency.
- The resolution process has to be completed within 330 days, including litigations and other judicial process
- Formation of Insolvency and Bankruptcy Board of India (IBBI) for regulating Insolvency professionals.
- Specialized agencies for adjudication in form of NCLT for Companies and LLPs and Debt recovery tribunals for others.
Positive impact of IBC:
- Improvement in average recovery from 26% to 46%.
- The Code has created a deterrence effect as seen from the fact that around 3,500 cases involving default of 2 lakh cr. were withdrawn suggesting creditor recovered money from debtor by threat of IBC.
- NPA worth 40,000 to 50,000 cr. have been converted into standard assets that has freed the resources for wealth creation.
- IBC has promoted behavioral change among promoters.
- The Code has reduced the burden on taxpayers as otherwise taxpayers would have to foot the burden of recapitalization of banks.
Yet there are certain challenges before the existing code:
- The Section 29A of the Code has debarred certain entities thus brought down competition in bidding thereby resulting into reduced recovery.
- Most of the cases before the NCLT has failed to adhere to strict timeline of 180 days resulting in losses for the creditors.
- The conflict between the rival creditors (operational and financial creditor) has added to delay and confusion. For ex- Standard Charted bank as a operational creditor challenged the resolution plan as prepared in Essar steel case.
- Threat of vilification by investigating agencies has created problems for the banks in taking a haircut.
Way forward: Considering the above issues there is a need for:
- Quality resolution professionals, capacity building of NCLT in terms of creation of more benches and manpower.
- Moreover, once a resolution plan has been approved no objection should be entertained.
The principal stakeholders in insolvencies such as NCLT, Resolution Professionals, Committee of Creditors need to expedite resolution process.
Subjects : Economy